Question

your investment has a 30% chance of losing 8%, a 40% chance of earning a 12% rate of return, and a 30% chance of earning a 15% return. What is your standard deviation of returns?

A 12.5% B 10.85% C 7.14% D 9.7%

Answer 1

expected return=30%*(-8%)+40%*12%+30%*15%=6.90%

What is your standard deviation of returns

=(30%*(-8%-6.90%)^2+40%*(12%-6.90%)^2+30%*(15%-6.90%)^2)^(1/2)

=9.8%, so nearest answer will be 9.7% (due to intermediate decimals)